Whatever your vision for retirement, you have to consider whether or not you will continue to live in your current home. Some retirees downsize from a house that was once full of kids. Others want to stay forever, if possible, where they’ve lived for decades. Which option is right for you?
- Selling while the market is healthy could produce a needed influx of funds.
- Moving even a small distance could lower property taxes or put a retiree closer to newly desirable amenities such as a senior center.
- If a retiree’s home equity is low, they may lower their monthly housing costs by selling and then renting.
Benefits of Selling Your Home in Retirement
There are plenty of reasons to put a house up for sale. Here are the top ones:
Influx of Funds
Many people today go into retirement without enough savings. If you own your home outright or have a lot of equity in it, and if the housing market is healthy, selling could produce the extra funds your retirement accounts need.
Selling can also come with a tax break. “If you’ve lived in your home for the last two out of five years from the date of sale, you can exclude up to $250,000 of the capital gain from the sale of the house if you’re single. If you’re married, you can exclude up to $500,000,” says Carlos Dias Jr., founder and managing partner of Dias Wealth LLC in Lake Mary, Fla.
Eliminating Maintenance Costs
Ongoing costs are another consideration since homes come with maintenance. The older your home, the more maintenance it’s likely to require. Was the home purchased originally to meet the needs of a big family? Are all of those extra rooms now only used when grown children or grandchildren visit? The larger the house, the higher the cost of property taxes, which are the taxes on real estate levied by local governments. Are crucial retirement funds being wasted on a large house?
As you age, a home might also have an essential feature that could suddenly become a big problem: stairs. They can create mobility challenges for older adults, and expensive remodeling of your home might become unavoidable.
If your home has stairs, they may become a mobility challenge late in life, requiring expensive remodeling.
Buying Your Ideal Home
The perfect home probably also means something different to a retiree than it meant when they were younger. You might have looked for a home in the best school district or near a workplace, but you likely have different priorities as a retiree (even to the point of selling everything and relocating overseas). Moving even a small distance could lower property taxes or put you closer to your grandchildren or newly desirable amenities such as a senior center.
Benefits of Staying in Your Home When You Retire
Should I sell my home and rent when I retire—or not? Let’s take a look at the advantages of staying put.
Staying Might be Cheaper than Renting
After a home sale, the most likely next steps involve renting or buying a downsized home. Buyers can pay cash, but renters pay with a monthly stream of money they’ll never get back. Staying in your home, even with all the expenses, might be cheaper in the long run than renting.
Much depends on the amount of home equity you have or whether you have a mortgage loan on the house. If you're nowhere near to paying off the mortgage and owning the home outright, you might reduce your payments by selling your home and then renting a different one. Remember, too, that all the maintenance and possibly some of the utilities are often included in the rent.
On the other hand, if your home is appreciating in value, it might be worth holding on to it. A realtor can give an opinion on the local housing market.
The non-financial reasons for staying may be strong. The sense of family inherent in a home after years of raising children can loom large in how you want to live in retirement. There’s nothing wrong with that, providing the financial resources are there.
“In many cases, it makes financial sense for retirees to downsize, as it eliminates maintenance costs and higher rent or mortgage payments,” says Matt Cosgriff, a certified financial planner and retirement consultant at BerganKDV. “That’s a big plus for retirees who are now relying on their retirement assets to support their spending."
Cosgriff adds the following:
The decision, however, is not always an easy one, due to the fact that many retirees have years, if not decades, of memories tied up in their home. To help overcome this hurdle, it is important for retirees to focus on the positives of downsizing, which include more time to be able to spend with loved ones and a lower monthly mortgage or rent payment.
The Bottom Line
When it comes to a home, retirement planning depends not on a single answer but an individual and specific financial picture. Find a trusted financial advisor or planner who will know the questions to ask and help you think through the issues and do the math.